Information Technology vs Industrial Clusters
Background and Introduction:
Information Technology (IT) has been an important force transforming human life on planet earth. It has changed the foundations of business, social, economic, financial, technological dimensions of human life. It has fostered the pace of life as well as changed the lifestyle and speed of human life.
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Now with the advent of internet, the speed of life has become an important determinant of keeping pace in different dimensions of life. The very meaning of markets and boundaries defining the markets and business domains have undergone a complete change because of the internet and fostering technological change that it brought in its wake.
While corporate business world has taken full advantage of the internet, it has still I the early phases of realizing full support and potential of the internet. IT speculators suggested huge benefits from the internet which meant relocation and complete physical freedom from the customers, competitors and physical boundaries of the market which earlier defined the very limits of any industry.
By early twentieth century, the markets were tended to be defined at local level, at city level and at the national levels. There was little mention of the international or global markets. This was because of limited progress achieved in the means of communications and transportations. Most markets were considered as physical definitions or definitions in terms of physical presence of the buyers and sellers. Each place where buyers and sellers could be physically present were defined as local markets. Where ever the buyers and sellers could gather together from a national scale were the national markets. The limited advancements in the means of transport and communications were a natural barrier on the market definition.
As the industrialization process grew and the means of transport and communications also grew with them. The beginning of the railways system and the telegraphs and telephone brought about some relaxations in the definition of the markets and the markets definitions also included the areas from far off here there were customers of any product or service where transport means such as railways and communication means such as telephone and telegraphs had access. Therefore the means of transport and communications have served as a key factor defining the geographical boundaries of markets. The definitions of the market boundaries has moved hand in hand with the advancements of the transportation and communications.
The second half of the twentieth century has brought a technological revolution especially in the IT sector. The computer is the most fascinating invention of the twentieth century. It has transformed the speed and accuracy levels of the information processing. It has also promised and delivered transparency and merit. In the last fifty or sixty years the world has witnessed the rise of internet which has impacted the communications in an un-precedent manner. The rise of the internet has defined and redefined the basics of communications in every nook and corner of the world. The business markets and each industry and segment is deeply affected by the growth and usefulness of internet.
Amongst the key benefits envisaged by the IT experts, the Internet was thought to redefine the markets as well. In several sectors such as services banking and retailing and IT, it was thought that the internet would introduce branchless services virtually eliminating the physical presence of the branches in every area of the country. But despite the wide spread use of the internet in every office and production factories and manufacturing area, it is noted that companies still prefer to be located near their competitors and outsourcers. WhyThis is the primary question that we need to answer in this essay.
In the conventional approach to networking, most industries in retailing services and banking followed an level headed approach with their competitors. In every area, Mcdonalds and KFC and Burger King have their outlets almost next to each other or as near as possible. Banks also tend to have their branches next to each other in every area regardless of the volume of business they can get. They go for prominence and presence as much as for their market share ion every area. The reasons are simple and straight forward. Despite the use of internet, physical presence through an outlet is thought as important as the market share and sales through that area. Secondly the most important characteristics are discussed as follows:
In the banking sector concept of branchless banking was envisaged with the rise of internet. Despite after wide spread use and years of practice and websites each bank has launched and online services uploaded on their websites, the online services used by the clients, customers and banks is hindered by some plain truths. The mal practices, internet frauds, site hacking and other practices that put the online security of information under question mark, has caused clients, customers and banks to shy away from using the online services with full confidence. The use of the online services is limited and transactional volumes of the online services are still limited because of the limited trust and confidence earned by the online services because of security of online information. Most companies and clients and individual customers deem online data to be vulnerable and prone to theft. This causes the use of online services to be used in limited volume and thus limiting the concept of branchless banking.
Secondly, the traditional and conventional banking practices call for a physical presence of the ban k outlets in each area so that the customers may see and visit the bank they trust and deal with. This is owing to the fact that customers pledge their trust more with a bank physically present than with the one which has a presence only on the web. The so called ‘human element’ is still more important than the technologically advanced services such as online banking. A modern customer does not have the luxury of time and his time is money. He wants to invest his time as much cautiously as money. He knows that if he mismanages his time, he will loose money, therefore time is money. The ebanking is an answer to many of his needs on this perspective. He can perform many of his jobs and day to day banking activities which ate into his precious time, He can deal with all financial activities by means of ebanking. A modern customer is an ebanker. He prefers not to visit a bank branch as long as he can meet his banking need via one of the available ebanking means and ways. Therefore, ebanking is considered as an answer to many of the problems of the customer of modern day baking market. “Challenges remain even in Latin America. In locations not served by banks most users open an account primarily to access welfare payments, or because their employer deposits their salary directly into their account. Apart from withdrawals, the most frequent use of the accounts is for making utility bill payments.” http://economictimes.indiatimes.com
“The power of cellular phones has been tremendous in the country, and the branchless banking program would target cell phone users with little or no access to banks, he said.”(www.thejakartapost-banking-start-bali.html)
Telebanking is also considered as part of the internet banking. In the telebanking services by dialing the given Telebanking number from anywhere, the customer can access their accounts and by following the user-friendly menu, entire banking set up can be conducted through Interactive Voice Response (IVR) system which is purpose built and designed to serve the customer. There are sufficient numbers of hunting lines available with this system and the customer calls never fail or go un attended. The system is built around in several local languages and acts to the usage ability of the customer. The modern day organization is highly interactive and dependent on the ebanking services. The accounts department is functional on ebanking system and it can check its daily cash balance and issue checks and make payments and transfer the funds through ebanking and tele-banking services alone. It saves on the time and effort of the organisation. Branchless Banking has potential as stated by Times of India “Branchless banking has a huge potential to reach the unbanked and underserved segment of the population, he said and added that the branchless banking certainly will help people to take better advantage of the banking facilities at affordable cost” (http://timesofpakistan.pk)
The cultural factors that tie and define business values for a specific locality also define the brand equity and market share in specific pockets of a market forcing companies to locate themselves in each area close to their competitors and outsourcers. This forces most banks and retailing companies like Mc donalds, KFC, Burgar King to stretch out and make their branches available in the local vicinity of their competitors. If a competitor in retailing will have an outlet in one area, he may well get the touch and feel of the local buyers more intimate touch and feel of the local buyers. He can respond to their needs more sharply and meaningfully than if he is not there. Same goes for the banking sector as well. Each branch manager has to perform as part of his duties a heavy job of personal banking and personal relation building with his clients in each pocket of the market to make its customers feel at home with their bank. “ Branchless banking is very useful and helpful in both urban and rural areas” states (http://telecomnewspk.com)
With the rise of IT and internet services, the cluster formation or geographical concentration of competing companies is maintained because of the customers increasing demand for ‘Customization‘ in the products and services areas. This forces most companies to locate themselves close to their competitors so that they may learn about the local taste and preferences. Each retailing outlets tries to serve the customers in a customized fashion in terms of local taste and preferences. Same is true for the banking sector as well. Most banks open their branches close to their competitors because they want to make sure that they meet the needs of their customers in a superior fashion to their competitors.
With the rise of IT and internet services, the cluster formation or geographical concentration of industrial units is maintained because of the production economies and tax holidays offered by certain states. The competitors tend to have their industrial units in the same areas because they want to keep pace with the tax holidays that are earned by their competitors. It affects their cost of production and thus the cost of sales of their products and service. Therefore, the competing companies tend to locate themselves close to their competitors and outsourcers as it may be caused by the tax benefits and tax holidays earned by the companies in certain industries. This leads to the cluster formation or geographical concentration of industrial units despite the widespread used of the internet and IT services.
With the rise of IT and internet services, the cluster formation or geographical concentration of industrial units is maintained because of the fact that many companies tend to maintain their outreach to the market and access-to-market at the same level as their competitors’. This factor is important in the case of many products and services such as foam and bedding industry which is a heavy produce to carry and it needs to be located near the market and thus in order to maintain a competitive edge with the competitors on ‘outreach’ to the market, the companies tend to locate their industrial units close to their competitors. This is also why with the rise of IT and internet services, the cluster formation or geographical concentration of industrial units is still maintained.
The cost of transportation as part of production cost is an important determinant of the choice of location for companies for their industrial units. Companies tend to locate their industrial units near their competitors because they want their transportation cost to be the same as of their competitors. This is also a reason why despite the rise of IT and internet services, the cluster formation or geographical concentration of industrial units is still maintained.
Companies tend to locate themselves close their competitors because of the fact that they want to maintain their edge with their competitors in terms of getting the market feedback. They want to maintain an equal closeness and proximity to their clients or customer base or target market with their competitors and ear the title of caring and respect for the customer in the eyes of the customers. Therefore even with the rise of IT and internet services, the tendencies of concentration of industrial units is still maintained. Industrial clusters develop “Industrial clusters develop in places where a business can develop links with other firms (and universities, government bodies and so on) to boost its performance” (http://www.cogentsi.com)
Lastly, companies tend to locate themselves close their competitors because they want to conduct market intelligence and collect information about their competitors activities and utilize that information in their business plans. This leads to industrial clusters and concentration of industrial clusters within geographical areas, despite the increasing use of information technology and internet services.
In so doing companies maintain their edge with their competitors in terms of market intelligence. They want to maintain a close eye on their competitors and thus even with the rise of IT and internet services, the tendencies of concentration of industrial units is still maintained.
From the foregoing discussion, it is difficult to escape the conclusion that despite the rise of internet and wider spread use of information technology, companies tend to concentrate their locations within close geographical locations. The use of internet and information technology has certainly increased the efficiency and functional performance of the companies at a mass level, the potential benefits accruing from branch-less services and reducing the geographical concentration are still far from reality. Most of the companies tend to be located near their competitors and the outsourcers because of the cost advantages and strategic reasons that hold, sway and largely dictate the strategic decisions of companies such as locating industrial units.